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Thursday, July 6, 2017

The Buyback Bamboozle

According to
Reuters news service, Nestlé, the chocolate maker, has announced a buyback of
its outstanding shares of up to 20 billion Swiss francs (cir. $20.79 billion) over the next three years.How much they actually buy back will depend
on market conditions, share price, and so on.

At first glance a
share buyback sounds good for investors.It puts upward pressure on the value per share, allowing anyone with a
sizable stake in the company to make out pretty well.

. . . by selling
their shares.One of the problems with
selling shares to make money on them is that you are no longer an owner of the
shares.You are a former owner.The best you can do is take the money and see
if you can find an equivalent investment in something else.Hershey’s?Nestlé tried to buy them.Curtis?Nestlé bought them.

Anyway, that’s
not even the main problem in a share buyback.It’s the money . . . as in, whose money is it?Nestlé is going to use $20 billion or so to
buy shares in itself from shareholders, meaning the owners of Nestlé.

Nestlé putting on the dog . . . chaaaaw-klet.

It doesn’t take a
genius to see what’s going on here.The
shareholders own Nestlé.That means
that they own what Nestlé owns, which includes the cash that will be used to
buyback the shares.

Are you getting
the picture?Instead of paying out the
cash that belongs to the shareholders to the shareholders in the form of
dividends, Nestlé is going to use cash that belongs to the shareholders to buy
shares from the shareholders.

Nestlé will be
buying shares from shareholders with
money that already belongs to the shareholders!It’s as if someone borrows $100.00 from you,
and pays it back with $100.00 he collected on your behalf from someone else.Instead of the $200.00 that is due you, you
only get $100.00.

And nobody sees
anything wrong in this? N-E-S-T-L-E-S, Nestlé's pulls the very best buuuuuy-backs!